Sterling Infrastructure Inc. - STRL

How long can the E-Infrastructure tailwinds continue?

I put out a “Quick Take” on shares of STRL back in October 2023, so around 10 months ago. At the time, I wasn’t sure how long I was going to keep STRL on my list since I wasn’t really sure if the numbers were playing themselves out the way they seemed to be. The company was certainly addressing the right markets, but how long would that strength be able to continue? Now that the shares are maybe 50% higher than they were back in October, I thought it might be worthwhile to update my thoughts and why it continues to be of interest.

After the company’s Q2 2023 results were posted, we saw that the company’s “combined backlog” (which is basically both “signed” and “unsigned but expected” combined) had just popped up to $2.393B on the back of a doubling in the backlog of their “E-Infrastructure” segment over the prior 4 quarters. This is the division that bids on projects from the folks building out the AI and data warehouse infrastructure, like all of those hyperscale computing companies, even those pesky bitcoin miners, and all of those tech giants looking to expand their own infrastructure to compete with all the startups.

In Q3 2023 that “combined backlog” number stayed relatively flat at $2.385B, dropping a tad to $2.37B in Q4, before ticking slightly higher to $2.417B and the recent $2.447B as of the end of June.

Hmm. That’s 4 quarters in a row of pretty much zero growth, so perhaps we are seeing some sort of flattening in that particular metric. But it’s not really just the backlog number, but rather the mixture of the components within that backlog number the should be sending out some alarm bells for the bulls.

That’s not the only area of concern for investors, though, since quite a few other metrics appear to be running into some other hurdles.